Is HYUNGJI INNOVATION & CREATIVELtd (KOSDAQ:011080) Using Too Much Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that HYUNGJI INNOVATION & CREATIVE Co.,Ltd (KOSDAQ:011080) does use debt in its business. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is HYUNGJI INNOVATION & CREATIVELtd's Net Debt?

As you can see below, HYUNGJI INNOVATION & CREATIVELtd had ₩10.3b of debt at September 2025, down from ₩21.5b a year prior. On the flip side, it has ₩2.83b in cash leading to net debt of about ₩7.46b.

How Healthy Is HYUNGJI INNOVATION & CREATIVELtd's Balance Sheet?

According to the last reported balance sheet, HYUNGJI INNOVATION & CREATIVELtd had liabilities of ₩20.8b due within 12 months, and liabilities of ₩4.35b due beyond 12 months. On the other hand, it had cash of ₩2.83b and ₩7.00b worth of receivables due within a year. So its liabilities total ₩15.3b more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since HYUNGJI INNOVATION & CREATIVELtd has a market capitalization of ₩38.6b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since HYUNGJI INNOVATION & CREATIVELtd will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

View our latest analysis for HYUNGJI INNOVATION & CREATIVELtd

In the last year HYUNGJI INNOVATION & CREATIVELtd had a loss before interest and tax, and actually shrunk its revenue by 11%, to ₩53b. We would much prefer see growth.

Caveat Emptor

Not only did HYUNGJI INNOVATION & CREATIVELtd's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable ₩7.1b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₩6.0b of cash over the last year. So suffice it to say we consider the stock very risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 5 warning signs for HYUNGJI INNOVATION & CREATIVELtd you should be aware of, and 4 of them make us uncomfortable.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.